The pause on federal student loan payments and collections is coming to an end on Oct. 1, meaning that borrowers with outstanding balances will soon get their first bill in more than three years.
The pause, which went into effect in March 2020 and has since been extended numerous times under the Trump and Biden administrations, will not get another extension after Congress prohibited President Joe Biden from doing so as part of a debt-ceiling deal.
For most borrowers, the first payment will be due in October, but not every one will have the same due date.
Borrowers will get the bill at least 21 days before the payment is due, and that bill will list the payment amount and due date, said the Department of Education (DOE), which oversees a federal student loan portfolio totaling more than $1.6 trillion, owed by about 43 million people.
Those who graduated in the spring do not have to make payments until their grace period expires, which is typically six to nine months after they left school.
Biden's 'On-ramp' Period, Explained
For borrowers who worry they won't be able to resume payments this fall, the Biden administration is offering them a year-long "on-ramp" repayment period.
Borrowers do not need to enroll in or sign up for the on-ramp, according to the DOE. If they simply don't pay, they will be automatically eligible.
During an on-ramp period, spanning from Oct. 1, 2023, until Sept. 30, 2024, the Education Department would not report borrowers to collection agencies or credit bureaus for late, missed, or partial payments, nor would it place any loans in default or delinquency.
However, interest will still add up during the period, meaning that the overall balances would balloon if the borrower didn't make monthly payments that at least cover the interest.
On top of that, missed payments will still be due after the on-ramp expires, and they won't be counted toward loan forgiveness under income-driven repayment (IDR) plans or Public Service Loan Forgiveness.
"We will not report you as delinquent during the on-ramp, but we do not control how credit scoring companies factor in missed or delayed payments," the DOE said.
"Your servicer will still provide you with billing statements showing you are delinquent on your payments. Not making a payment will result in you owing more on your student loans and could also impact your credit score," it added.
"As interest builds up, your servicer may also be required to increase your monthly payment to ensure you pay off your loans on time. If so, your servicer will send you a notice of the changed monthly payment amount."
In June, when announcing the creation of the student loan on-ramp, President Biden told borrowers that just because they could miss payments for a year without the threat of default doesn't mean they should.
A New IDR Repayment Plan
The Education Department has finalized its newest, "most affordable" IDR plan, dubbed Saving on A Valuable Education (SAVE). It replaces REPAYE, a previous IDR plan that was introduced in 2015.SAVE's final rules, unveiled in August, provide some of the most generous undergraduate student loan repayment options so far.
For single borrowers earning less than $32,800 per year, or roughly $15 dollars per hour, their monthly payment will be $0. Borrowers who make less than $67,500 for a family of four would also see $0 monthly bills.
Starting next summer, most other borrowers on the SAVE Plan would have their payments on undergraduate loans cut by at least half. Borrowers who have undergraduate and graduate loans will pay a weighted average of 5–10 percent of their income based on the original principal balances of their loans.
In addition, students who borrow less than $12,000 would see their remaining balances wiped away after making 10 years of payments, instead of 20–25 years.
For those who make monthly payments, their loan balance won't grow due to unpaid interest. For example, if $50 in interest accumulates each month and the borrower made a $30 payment, the remaining $20 would not be charged.
New 'Forgiveness' Program Won't Arrive Anytime Soon
The Biden administration has also reintroduced the plan to "forgive" hundreds of billions of dollars of federal student loan debt, this time grounded in the Higher Education Act (HEA), which proponents of student loan cancellation argue allows the government to "compromise, waive or release" student loansRelying on the HEA to advance the plan, the Biden administration now turns to a typically lengthy, complicated process called "negotiated rule-making." It is expected to first undergo many rounds of public hearings and months-long comment periods that require an extensive amount of public input before any changes can come into effect.
In the meantime, the Education Department advises borrowers to continue paying off their loans while they wait for the new debt relief program.
"This [negotiated rule-making] process will take time, and you will be required to make payments in the meantime," the agency said. "When designing a new debt relief program, we will consider ways to ensure that borrowers making payments maintain their eligibility for debt relief."
President Joe Biden's original plan, which would cancel up to $10,000 in student loan debt for those earning less than $125,000 and another $10,000 for Pell Grant recipients who meet the income limit, was grounded in the HEROES Act, a law passed in the aftermath of the Sept. 11 terrorist attacks.
Although the Biden administration argued the HEROES Act would allow the education secretary to cancel student loans in response to the COVID-19 public health emergency, the U.S. Supreme Court wasn't convinced.
"The HEROES Act ... does not allow the Secretary to rewrite that statute to the extent of canceling $430 billion of student loan principal," Chief Justice John Roberts wrote for the high court's 6–3 majority, noting that what was outlined in the president's plan "created a novel and fundamentally different loan forgiveness program" that "expanded forgiveness to nearly every borrower in the country."
